There's a limit to how large we can scale computers at any given tech level. What you're talking about is basically what a supercomputer is (they have many CPUs rather than one huge one), but there's still a limit to what's practical with them.
What do you mean by "evolve intelligence"? Run evolutionary algorithms on random bits of code? How do you evaluate the results? Before you can use search algorithms you have to be able to define the target, which is most of the problem in this case, plus search is likely to be impractically slow in something as big as "the space of all programs".
Having 1000+ petabytes is not impossible with our level of technology. It is somewhat nitpicky to focus rather on the physical absurdity of house-sized computers.
Run Watson, select the Watsons that can solve problems better.
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